Barone: The 'fiscal cliff' and the illusion of prosperity

President Barack Obama makes an opening statement during his news conference on Wednesday in the East Room of the White House. Obama said he is working with Congress to avoid the impending fiscal cliff.

As I indicated in my last column, after the election was decided, the markets would focus on other impending economic issues - this time, the one called the "fiscal cliff." This issue shares the same two characteristics that most other major economic issues that surface in today's society possess: 1) It is seized upon by the media as the major underlying issue in the economy, and once resolved, or if resolved, would provide clear sailing toward renewed prosperity; and 2) Like every other major issue in the U.S. economy today, it has been the actions of the political class themselves, via the excesses of spending or crippling laws or regulations, that have produced the impending crisis.

This particular issue, the fiscal cliff, has resulted from a game of chicken between the two major U.S. political parties, a game that has the potential to throw the economy (an economy that still has not recovered from the financial crisis and recession) into another significant contraction. But, beware. A solution to the fiscal cliff crisis will do absolutely nothing to heal the sick economy and put it back on the road to prosperity.

Let's not be naïve. The politicians will not allow the entire "fiscal cliff" to occur. And, while I do not know what they will actually do, I suspect that the "fiscal cliff" will be postponed until January 2014 to give them time to "fix" such things as the tax code, tax rates and who pays. "Kicking the can down the road" is what politicians do best, especially when government is divided between parties with diametrically opposed philosophies. Therefore, this fiscal cliff issue likely is to be a dominant story for the next year or so.

Kicking the can will continue the uncertainty currently plaguing the business sector, and it will allow the media to continue to deflect from the real issues facing America today, such as structural unemployment, an issue deeply rooted in government interference in, and attempted control of, the private free market system. You see, the "fiscal cliff," while a real issue, has been contrived by the politicians.

And, while it ultimately might be useful in addressing the broken tax code (I view this as unlikely given the way money is spent by special interests), solutions to it are unlikely to fix the overspending habit or the underemployment issue.

The media will dance around the fiscal cliff issue for another year or so as if its solution is all that stands in the way of economic regeneration, and they will continue to ignore the fact that government policy, rules, excess taxes, etc. have turned the American economic growth engine, once powered by individualism and economic opportunity, into a sputtering, choking engine powered by a part-time, underemployed and discouraged workforce with more than 47 million people on food stamps and contracting median income.

Recognizing that jobs and income, or the lack thereof, are the major issues simply has not yet occurred. On a monthly basis, the media lauds the fact that 150,000 jobs are created despite the fact that most of these are part-time jobs, taken by seniors who can't afford to retire because their nest eggs have been decimated throughout the past decade and they earn 0 percent interest on what precious little is left. Meanwhile, full-time jobs and incomes of those in their prime earning years continue to contract.

The focus on the "fiscal cliff" and other contrived issues just postpones that day of recognition. Until that day when such recognition occurs and real solutions are implemented, the U.S. economic engine will continue to grossly underperform its potential, perhaps operating much of the time at stall speed, or worse. For those with assets worried about the future, the appropriate selection of investment vehicles is vital.

Robert Barone (Ph.D., economics, Georgetown University) is a principal of Universal Value Advisors, Reno, a registered investment adviser. Barone is a former director of the Federal Home Loan Bank of San Francisco and currently is a director of Allied Mineral Products, Columbus, Ohio, AAA Northern California, Nevada, Utah Auto Club and the associated AAA Insurance Company where he chairs the investment committee. Barone or the professionals at UVA (Joshua Barone, Andrea Knapp, Matt Marcewicz and Marvin Grulli) are available to discuss client investment needs. Call them at 775- 284-7778.Statistics and other information have been compiled from various sources.

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Barone: The 'fiscal cliff' and the illusion of prosperity

As I indicated in my last column, after the election was decided, the markets would focus on other impending economic issues ? this time, the one called the 'fiscal cliff.' This issue shares the same

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